Traditionally, a public company invests its working capital utilizing a “buy-and-hold” strategy. Investments are always made in short term debt or debt “lookalikes”. The investment is always of high credit quality to limit risks due to the possibility of issuer default. The investor purchases the security and holds it until receiving the par value of the investment.
The investor utilizing this strategy does not invest for capital appreciation. Rather, the corporate investor looks to protect the corpus and to collect interest or dividend income only. Par value may be facilitated by maturity, in the case of commercial paper, or by demand features, e.g., puts, auctions, etc., to assure that the investor will receive every cent of principal. Public companies, and private companies that qualify to be public, operate under a board policy outlining minimum credit acceptable standards of issuers, maximum maturity of a single investment, maximum duration and diversity delimiters to limit exposure to a single issuer, country, sector or other limits.
Typically a corporate investor executes this strategy by looking at a cash forecast, that typically includes an accounts payable forecast. From this the investor determines a principal amount available for investment and when the principal amount is needed. The individual responsible for investing places inquiries with several securities dealers to determine what investments that qualify with the corporate investment policy are available and what rates are offered. The corporate investor shops for investments. In theory, the investor then takes the highest offer and invests until maturity, When that investment matures, the process is repeated.
With the increasing use of the Internet as a backbone for electronic commerce, it would be highly desirable to be able to provide the corporate investor with the opportunity to make such investments via the Internet. However, to date no one has been able to efficiently offer an Internet based system to corporate investors. In large part, the reason is that Internet based investing has not been efficient because there are tens of thousands of offers made daily. Most of the offers are newly issued investments rather than investment that are traded in a secondary market. By way of example, if IBM issued commercial paper yesterday at 5.80%, today the may issue it at 5.85% and tomorrow at yet another rate.